The Dimensions of
Asbestos Litigation
Stephen Carroll
September 2002
RAND INSTITUTE FOR CIVIL JUSTICE
Draft/Do Not Cite A3822-1 07/02
Trends in Asbestos Litigation
Are Raising Policy Concerns
 Asbestos litigation began to attract policy attention in
early 1980s
 Settlement agreements in late 1980s led many to
believe litigation was “manageable”
 But rapid increases in the number of claims and costs
have reawakened interest
 Growth in litigation appears likely to continue
 Is there a better way of compensating asbestos
victims?
Draft/Do Not Cite A3822-2 07/02
To Address These Concerns, Policymakers
Must Know Dimensions of the Litigation
 How many claims and of what type?
Claims
 Who are the defendants?
 How much is being spent on litigation?
Costs
 How much of that goes to claimants?
Economic  What is the extent of asbestos bankruptcies?
effects
 What are their broad economic effects?
Future  Where is this all headed?
outlook
The RAND study addressed these questions
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Over 600,000 Claimants to Date
 Number of claims filed annually has risen sharply
 Average severity of claimed injuries is declining
 Little change in frequency of seriously ill claimants
 Increasing proportion of claims for less serious
injuries
 Typical claimant files against several dozen
defendants
Draft/Do Not Cite A3822-4 07/02
Annual Claims Filings Have Risen
Sharply Since 1990
90,000
Asbestos Claims Against Five Major Defendants
80,000
70,000
Number of 60,000
claims
50,000
40,000
30,000
20,000
10,000
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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“Other” Nonmalignant Claims
Account for the Growth in Claims
5
Mesothelioma
Other Cancer
4 Asbestosis
Other
Ratio of the
number of 3
claims in
each year to
the number
of claims in 2
1990
1
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
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Various sources Suggest Increasing
Numbers of Claimants Are Unimpaired
1982 4% of claims showed no manifest asbestos-related
injury (RAND)
1993 Up to one-half of all asbestos claims have little or
no physical impairment (Harvard Journal of
Legislation)
1998 No evidence of disease in 57% of asbestos claims
(Manville Trust)
2001 74% of pending claims are unimpaired (confidential
report prepared for a defendant)
Two-thirds of claims show no evidence of
impairment (Babcock & Wilcox)
Vast majority of claims provide no evidence of
impairment (Rourke)
Draft/Do Not Cite A3822-7 07/02
The Number and Range of
Defendants Have Also Increased Sharply
 Our list of defendants includes over 6,000 firms
 Increasing number of defendants outside the
asbestos and building products industry
 Both large and small businesses
 At least one company in nearly every U.S. industry (at
the 2-digit SIC level) now involved in litigation
 By 1998, non-traditional defendants account for over
60% of expenditures (confidential study)
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Estimated Total Costs of Resolving
Asbestos Claims Through 2000: $54 B
 Publicly available data are very limited
 We estimate total outlays of $54 B through 2000
 U.S. insurers $22 B
 Insurers outside U.S. $8 to 12B
 Defendants $20-24 B
 At least 5 major companies have spent more than
$1B each on asbestos litigation
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Transaction Costs Have Consumed
More Than Half of Total Spending
100
Plaintiff
80
Compensation
60
Plaintiff
40 Expenses
20 Defense
Expenses
0
1980s 1990s
Litigation Litigation
And they are likely to go back up in next decade
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But Transaction Costs of Bankruptcy
Trusts May Be Low
100
Plaintiff
80
Compensation
Plaintiff
60
Expenses
Defense
40 Expenses
20
0
1980s Manville
Litigation Trust
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It Is Difficult To Determine What
An Individual Claimant Receives
 Only plaintiffs and their attorneys know how much
claimants receive (net)
 Claimants receive money from multiple sources over
long time periods
 Defendants pay different amounts for same injuries
 There are wide variations by jurisdiction
 Most of the data are not public
 But some aggregate distributional data are available
Draft/Do Not Cite A3822-12 07/02
Most Dollars Are Paid
to Nonmalignant Claimants
Estimated Allocation of Compensation 1991-2000
Mesothelioma
17%
Other cancer
20%
Nonmalignant
63%
Draft/Do Not Cite A3822-13 07/02
Bankruptcies Are Becoming
More Frequent
 3 bankruptcies in 1982--the first ones
 13 more in the rest of the 1980s
 9 in the first half of the the 1990s
 9 in the second half
 22 since January 1, 2000
 4 dates to be determined
Draft/Do Not Cite A3822-14 07/02
Costs of Bankruptcy Can
Be Substantial
 Transaction costs of bankruptcy reorganization are
generally about 3% of firm value
 Bankruptcy imposes other costs
 Disrupts relationships with suppliers and customers
 Impairs (or eliminates) access to credit
 Distracts managers’ attention
 After reorganization, the bankruptcy trust may hold all or
most of the firm’s equity
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And Bankruptcy Is Only
Part of the Story
 Defendants’ net payments to asbestos claimants
weaken their financial position, cost jobs
 Reduce retained earnings
 Increase the cost of capital
 Reduce investment
 Reduce creation of new jobs
 However, other firms’ reactions may offset these
losses
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The Future Course of Litigation
Is Uncertain
 Experts’ future projections also vary dramatically
 Total claims: 1.1 to 3.1 million
 Total costs: $200 to 265 billion
 Whether there will be money left to pay future claimants—
and who will pay —remain open questions
Draft/Do Not Cite A3822-17 07/02
Will There Be Enough Money
for Future Claimants?
Compensation as
Example of Johns-Manville raises doubts percent of
liquidated value
1988 Trust payments began 100%
1990 Payments suspended (Only exigent
cases paid)
1995 Payments resumed 10%
2001 Payment plan revised 5%
Draft/Do Not Cite A3822-18 07/02
Policy Implications
 How to resolve asbestos claims fairly and efficiently
is still a significant policy question
 We may have seen less than half of all claims that
will ultimately come forward
 Current bankruptcies provide a window of
opportunity for reviewing and rethinking our
strategy
Draft/Do Not Cite A3822-19 07/02
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